General Theory of Employment，Interest and Money小说第12章

第12章

　　Itwasoneofthetendenciesagainstwhichinnumerablemercantilistwritersthundered，andIdonotthinkitwouldbepossibletofindasingledissentientvoice。[162]2Themercantilistswereawareofthefallacyofcheapnessandthedangerthatexcessivecompetitionmayturnthetermsoftradeagainstacountry。ThusMalyneswroteinhisLexMercatoria1622:'StrivenottoundersellotherstothehurtoftheCommonwealth，undercolourtoincreasetrade:fortradedothnotincreasewhencommoditiesaregoodcheap，becausethecheapnessproceedethofthesmallrequestandscarcityofmoney，whichmakeththingscheap:sothatthecontraryaugmentethtradewhenthereisplentyofmoney，andcommoditiesbecomedearerbeinginrequest'。[
　　163]ProfessorHeckschersumsupasfollowsthisstrandinmercantilistthought:Inthecourseofacenturyandahalfthisstandpointwasformulatedagainandagaininthisway，thatacountrywithrelativelylessmoneythanothercountriesmust'sellcheapandbuydear'……
　　EvenintheoriginaleditionoftheDiscourseoftheCommonWeal，thatisinthemiddleofthe16thcentury，thisattitudewasalreadymanifested。
　　Halessaid，infact，'Andyetifstrangersshouldbecontenttotakebutourwaresfortheirs，whatshouldletthemtoadvancethepriceofotherthingsmeaning:amongothers，suchaswebuyfromthem，thoughoursweregoodcheapuntothem？Andthenshallwebestilllosers，andtheyatthewinninghandwithus，whiletheyselldearandyetbuyoursgoodcheap，andconsequentlyenrich[Page346]THE
　　GENERALTHEORYOFEMPLOYMENTthemselvesandimpoverishus。YethadIratheradvanceourwaresinprice，astheyadvancetheirs，aswenowdo；thoughsomebelosersthereby，andyetnotsomanyasshouldbetheotherway。'Onthispointhehadtheunqualifiedapprovalofhiseditorseveraldecadeslater1581。
　　Inthe17thcentury，thisattituderecurredagainwithoutanyfundamentalchangeinsignificance。Thus，Malynesbelievedthisunfortunatepositiontobetheresultofwhathedreadedaboveallthings，i。e。aforeignunder-valuationoftheEnglishexchange……Thesameconceptionthenrecurredcontinually。
　　InhisVerbumSapientiwritten1665，published1691，Pettybelievedthattheviolenteffortstoincreasethequantityofmoneycouldonlycease'whenwehavecertainlymoremoneythananyofourNeighbourStatesthoughneversolittle，bothinArithmeticalandGeometricalproportion'。Duringtheperiodbetweenthewritingandthepublicationofthiswork，Cokedeclared，'IfourTreasureweremorethanourNeighbouringNations，IdidnotcarewhetherwehadonefifthpartoftheTreasurewenowhave'1675。[164
　　]3Themercantilistsweretheoriginalsof'thefearofgoods'andthescarcityofmoneyascausesofunemploymentwhichtheclassicalsweretodenouncetwocenturieslaterasanabsurdity:OneoftheearliestinstancesoftheapplicationoftheunemploymentargumentasareasonfortheprohibitionofimportsistobefoundinFlorenceintheyear1426……TheEnglishlegislationonthemattergoesbacktoatleast1455……AnalmostcontemporaryFrenchdecreeof1466，formingthebasisofthesilkindustryofLyons，latertobecomesofamous，waslessinterestinginsofarasitwasnotactuallydirectedagainstforeigngoods。Butit，too，mentionedthepossibilityofgivingworktotensofthousandsofunemployedmenandwomen。Itisseenhowverymuchthisargumentwasintheairatthetime……
　　Thefirstgreatdiscussionofthismatter，asofnearlyallsocialandeconomicproblems，occurredinEnglandinthemiddleofthei6thcenturyorratherearlier，duringthereignsofHenryVIIIandEdwardVI。Inthisconnectionwecannotbutmentionaseriesofwritings，writtenapparentlyatthelatestinthe1530's，twoofwhichatanyratearebelieved[Page347]NOTES
　　ONMERCANTILISM，ETC。tohavebeenbyClementArmstrong……Heformulatesit，forexample，inthefollowingterms:'ByreasonofgreatabundanceofstrangemerchandisesandwaresbroughtyearlyintoEnglandhathnotonlycausedscarcityofmoney，buthathdestroyedallhandicrafts，wherebygreatnumberofcommonpeopleshouldhaveworkstogetmoneytopayfortheirmeatanddrink，whichofverynecessitymustliveidlyandbegandsteal'。[165
　　]
　　ThebestinstancetomyknowledgeofatypicallymercantilistdiscussionofastateofaffairsofthiskindisthedebatesintheEnglishHouseofCommonsconcerningthescarcityofmoney，whichoccurredin1621，whenaseriousdepressionhadsetin，particularlyintheclothexport。Theconditions'veredescribedveryclearlybyoneofthemostinfluentialmembersofparliament，SirEdwinSandys。Hestatedthatthefarmerandtheartificerhadtosufferalmosteverywhere，thatloomswerestandingidleforwantofmoneyinthecountry，andthatpeasantswereforcedtorepudiatetheircontracts，'notthanksbetoGodforwantoffruitsoftheearth，butforwantofmoney'。Thesituationledtodetailedenquiriesintowherethemoneycouldhavegotto，thewantofwhichwasfeltsobitterly。
　　Numerousattacksweredirectedagainstallpersonswhoweresupposedtohavecontributedeithertoanexportexportsurplusofpreciousmetals，ortotheirdisappearanceonaccountofcorrespondingactivitieswithinthecountry。[166]Mercantilistswereconsciousthattheirpolicy，asProfessorHeckscherputsit，'killedtwobirdswithonestone'。'Ontheonehandthecountrywasridofanunwelcomesurplusofgoods，whichwasbelievedtoresultinunemployment，whileontheotherthetotalstockofmoneyinthecountrywasincreased'，[167]withtheresultingadvantagesofafallintherateofinterest。
　　Itisimpossibletostudythenotionstowhichthemercantilistswereledbytheiractualexperiences，withoutperceivingthattherehasbeenacbronictendencythroughouthumanhistoryforthepropensitytosavetobestrongerthantheinducementtoinvest。The[Page348]THE
　　GENERALTHEORYOFEMPLOYMENT
　　weaknessoftheinducementtoinvesthasbeenatalltimesthekeytotheeconomicproblem。To-daytheexplanationoftheweaknessofthisinducementmaychieflylieintheextentofexistingaccumulations；whereas，formerly，risksandhazardsofallkindsmayhaveplayedalargerpart。Buttheresultisthesame。Thedesireof，theindividualtoaugmenthispersonalwealthbyabstainingfromconsumptionhasusuallybeenstrongerthantheinducementtotheentrepreneurtoaugmentthenationalwealthbyemployinglabourontheconstructionofdurableassets。
　　4Themercantilistswereundernoillusionsastothenationalisticcharacteroftheirpoliciesandtheirtendencytopromotewar。Itwasnationaladvantageandrelativestrengthatwhichtheywereadmittedlyaiming。
　　[168]
　　Wemaycriticisethemfortheapparentindifferencewithwhichtheyacceptedthisinevitableconsequenceofaninternationalmonetarysystem。
　　Butintellectuallytheirrealismismuchpreferabletotheconfusedthinkingofcontemporaryadvocatesofaninternationalfixedgoldstandardandlaissez-faireininternationallending，whobelievethatitispreciselythesepolicieswhichwillbestpromotepeace。
　　Forinaneconomysubjecttomoneycontractsandcustomsmoreorlessfixedoveranappreciableperiodoftime，wherethequantityofthedomesticcirculationandthedomesticrateofinterestareprimarilydeterminedbythebalanceofpayments，astheywereinGreatBritainbeforethewar，thereisnoorthodoxmeansopentotheauthoritiesforcounteringunemploymentathomeexceptbystrugglingforanexportsurplusand[Page349]NOTES
　　ONMERCANTILISM，ETC。
　　animportofthemonetarymetalattheexpenseoftheirneighbours。
　　Neverinhistorywasthereamethoddevisedofsuchefficacyforsettingeachcountry'sadvantageatvariancewithitsneighbours'astheinternationalgoldor，formerly，silverstandard。Foritmadedomesticprosperitydirectlydependentonacompetitivepursuitofmarketsandacompetitiveappetiteforthepreciousmetals。Whenbyhappyaccidentthenewsuppliesofgoldandsilverwerecomparativelyabundant，thestrugglemightbesomewhatabated。Butwiththegrowthofwealthandthediminishingmarginalpropensitytoconsume，ithastendedtobecomeincreasinglyinternecine。Thepartplayedbyorthodoxeconomists，whosecommonsensehasbeeninsufficienttochecktheirfaultylogic，hasbeendisastroustothelatestact。Forwhenintheirblindstruggleforanescape，somecountrieshavethrownofftheobligationswhichhadpreviouslyrenderedimpossibleanautonomousrateofinterest，theseeconomistshavetaughtthatarestorationoftheformershacklesisanecessaryfirststeptoageneralrecovery。
　　Intruththeoppositeholdsgood。Itisthepolicyofanautonomousrateofinterest，unimpededbyinternationalpreoccupations，andofanationalinvestmentprogrammedirectedtoanoptimumlevelofdomesticemploymentwhichistwiceblessedinthesensethatithelpsourselvesandourneighboursatthesametime。Anditisthesimultaneouspursuitofthesepoliciesbyallcountriestogetherwhichiscapableofrestoringeconomichealthandstrengthinternationally，whetherwemeasureitbythelevelofdomesticemploymentorbythevolumeofinternationaltrade。[169]
　　[Page350]THE
　　GENERALTHEORYOFEMPLOYMENT
　　IV
　　Themercantilistsperceivedtheexistenceoftheproblemwithoutbeingabletopushtheiranalysistothepointofsolvingit。Buttheclassicalschoolignoredtheproblem，asaconsequenceofintroducingintotheirpremissesconditionswhichinvolveditsnon-existence；withtheresultofcreatingacleavagebetweentheconclusionsofeconomictheoryandthoseofcommonsense。Theextraordinaryachievementoftheclassicaltheorywastoovercomethebeliefsofthe'naturalman'and，atthesametime，tobewrong。AsProfessorHeckscherexpressesit:If，then，theunderlyingattitudetowardsmoneyandthematerialfromwhichmoneywascreateddidnotalterintheperiodbetweentheCrusadesandthe18thcentury，itfollowsthatwearedealingwithdeep-rootednotions。
　　Perhapsthesamenotionshavepersistedevenbeyondthe500yearsincludedinthatperiod，eventhoughnotnearlytothesamedegreeasthe'fearofgoods'。Withtheexceptionoftheperiodoflaissez-faire，noagehasbeenfreefromtheseideas。Itwasonlytheuniqueintellectualtenacityoflaissez-fairethatforatimeovercamethebeliefsofthe'naturalman'onthispoint。[170]
　　Itrequiredtheunqualifiedfaithofdoctrinairelaissez-fairetowipeoutthe'fearofgoods'……[which]isthemostnaturalattitudeofthe'naturalman'inamoneyeconomy。FreeTradedeniedtheexistenceoffactorswhichappearedtobeobvious，andwasdoomedtobediscreditedintheeyesofthemaninthestreetassoonaslaissez-fairecouldnolongerholdthemindsofmenenchainedinitsideology。[171]IrememberBonarLaw'smingledrageandperplexityinfaceoftheeconomists，becausetheyweredenyingwhatwasobvious。Hewasdeeplytroubledforanexplanation。Onerecurstotheanalogybetween[Page351]NOTES
　　ONMERCANTILISM，ETC。
　　theswayoftheclassicalschoolofeconomictheoryandthatofcertainreligions。Foritisafargreaterexerciseofthepotencyofanideatoexorcisetheobviousthantointroduceintomen'scommonnotionsthereconditeandtheremote。
　　V
　　Thereremainsanallied，butdistinct，matterwhereforcenturies，indeedforseveralmillenniums，enlightenedopinionheldforcertainandobviousadoctrinewhichtheclassicalschoolhasrepudiatedaschildish，butwhichdeservesrehabilitationandhonour。Imeanthedoctrinethattherateofinterestisnotself-adjustingatalevelbestsuitedtothesocialadvantagebutconstantlytendstorisetoohigh，sothatawisegovernmentisconcernedtocurbitbystatuteandcustomandevenbyinvokingthesanctionsofthemorallaw。
　　Provisionsagainstusuryareamongstthemostancienteconomicpracticesofwhichwehaverecord。Thedestructionoftheinducementtoinvestbyanexcessiveliquidity-preferencewastheoutstandingevil，theprimeimpedimenttothegrowthofwealth，intheancientandmedievalworlds。Andnaturallyso，sincecertainoftherisksandhazardsofeconomiclifediminishthemarginalefficiencyofcapitalwhilstothersservetoincreasethepreferenceforliquidity。Inaworld，therefore，whichnoonereckonedtobesafe，itwasalmostinevitablethattherateofinterest，unlessitwascurbedbyeveryinstrumentatthedisposalofsociety，wouldrisetoohightopermitofanadequateinducementtoinvest。
　　IwasbroughtuptobelievethattheattitudeoftheMedievalChurchtotherateofinterestwasinherentlyabsurd，andthatthesubtlediscussionsaimedatdistinguishingthereturnonmoney-loansfromthereturntoactiveinvestmentweremerelyjesuiticalattemptstofindapracticalescapefromafoolishtheory。ButI
　　[Page352]THE
　　GENERALTHEORYOFEMPLOYMENT
　　nowreadthesediscussionsasanhonestintellectualefforttokeepseparatewhattheclassicaltheoryhasinextricablyconfusedtogether，namely，therateofinterestandthemarginalefficiencyofcapital。Foritnowseemsclearthatthedisquisitionsoftheschoolmenweredirectedtowardstheelucidationofaformulawhichshouldallowthescheduleofthemarginalefficiencyofcapitaltobehigh，whilstusingruleandcustomandthemorallawtokeepdowntherateofinterest。
　　EvenAdamSmithwasextremelymoderateinhisattitudetotheusurylaws。Forliewaswellawarethatindividualsavingsmaybeabsorbedeitherbyinvestmentorbydebts，andthatthereisnosecuritythattheywillfindanoutletintheformer。Furthermore，hefavouredalowrateofinterestasincreasingthechanceofsavingsfindingtheiroutletinnewinvestmentratherthanindebts；andforthisreason，inapassageforwhichhewasseverelytakentotaskbyBentham，[172]hedefendedamoderateapplicationoftheusurylaws。[173]Moreover，Bentham'scriticismsweremainlyonthegroundthatAdamSmith'sScotchcautionwastoosevereon'projectors'
　　andthatamaximumrateofinterestwouldleavetoolittlemarginfortherewardoflegitimateandsociallyadvisablerisks。ForBenthamunderstoodbyprojectors'allsuchpersons，as，inthepursuitofwealth，orevenofanyotherobject，endeavour，bytheassistanceofwealth，tostrikeintoanychannelofinvention……uponallsuchpersonsas，inthelineofanyoftheirpursuits，aimatanythingthatcanbecalledimprovement……Itfalls，inshort，uponeveryapplicationofthehumanpowers，inwhichingenuitystandsinneedofwealthforitsassistance。'OfcourseBenthamisrightinprotestingagainstlawswhichstandinthewayoftakinglegitimaterisks。'Aprudentman'，Benthamcontinues，'willnot，inthesecircumstances，pickoutthegoodprojects[Page353]NOTES
　　ONMERCANTILISM，ETC。
　　fromthebad，forhewillnotmeddlewithprojectsatall。'[174]
　　Itmaybedoubted，perhaps，whethertheaboveisjustwhatAdamSmithintendedbyhisterm。OrisitthatwearehearinginBenthamthoughwritinginMarch1787from'CrichoffinWhiteRussia'thevoiceofnineteenth-centuryEnglandspeakingtotheeighteenth？Fornothingshortoftheexuberanceofthegreatestageoftheinducementtoinvestmentcouldhavemadeitpossibletolosesightofthetheoreticalpossibilityofitsinsufficiency。
　　VI
　　Itisconvenienttomentionatthispointthestrange，undulyneglectedprophetSilvioGesell1862-1930，whoseworkcontainsflashesofdeepinsightandwhoonlyjustfailedtoreachdowntotheessenceofthematter。Inthepost-waryearshisdevoteesbombardedmewithcopiesofhisworks；yet，owingtocertainpalpabledefectsintheargument，Ientirelyfailedtodiscovertheirmerit。Asisoftenthecasewithimperfectlyanalysedintuitions，theirsignificanceonlybecameapparentafterIhadreachedmyownconclusionsinmyownway。Meanwhile，likeotheracademiceconomists，Itreatedhisprofoundlyoriginalstrivingsasbeingnobetterthanthoseofacrank。SincefewofthereadersofthisbookarelikelytobewellacquaintedwiththesignificanceofGesell，Iwillgivetohimwhatwouldbeotherwiseadisproportionatespace。
　　GesellwasasuccessfulGerman[175]merchantin[Page354]THE
　　GENERALTHEORYOFEMPLOYMENT
　　BuenosAireswhowasledtothestudyofmonetaryproblemsbythecrisisofthelate'eighties，whichwasespeciallyviolentintheArgentine，hisfirstwork，DieReformationimMü；nzwesenalsBrü；ckezumsocialenStaat，beingpublishedinBuenosAiresin1891。HisfundamentalideasonmoneywerepublishedinBuenosAiresinthesameyearunderthetitleNervusrerum，andmanybooksandpamphletsfolloweduntilheretiredtoSwitzerlandin1906asamanofsomemeans，abletodevotethelastdecadesofhislifetothetwomostdelightfuloccupationsopentothosewhodonothavetoearntheirliving，authorshipandexperimentalfarming。
　　Thefirstsectionofhisstandardworkwaspublishedin1906atLesHautsGeneveys，Switzerland，underthetitleDieVerwirklichungdesRechtesaufdemvollenArbeitsertrag，andthesecondsectionin1911atBerlinunderthetitleDieneueLehrevomZins。ThetwotogetherwerepublishedinBerlinandinSwitzerlandduringthewar1916andreachedasixtheditionduringhislifetimeunderthetitleDienatü；rlicheWirtschaftsordnungdurchFreilandundFreigeld，theEnglishversiontranslatedbyMrPhilipPyebeingcalledTheNaturalEconomicOrder。InApril1919
　　Geselljoinedtheshort-livedSovietcabinetofBavariaastheirMinisterofFinance，beingsubsequentlytriedbycourt-martial。ThelastdecadeofhislifewasspentinBerlinandSwitzerlandanddevotedtopropaganda。
　　Gesell，drawingtohimselfthesemi-religiousfervourwhichhadformerlycentredroundHenryGeorge，becamethereveredprophetofacultwithmanythousanddisciplesthroughouttheworld。ThefirstinternationalconventionoftheSwissandGermanFreiland-FreigeldBundandsimilarorganisationsfrommanycountrieswasheldinBaslein1923。
　　Sincehisdeathin1930muchofthepeculiartypeoffervourwhichdoctrinessuchashisarecapableofexcitinghasbeendivertedtootherinmyopinionlesseminentprophets。DrBuchiistheleaderofthemovementinEngland，but[Page355]NOTES
　　ONMERCANTILISM，ETC。
　　itsliteratureseemstobedistributedfromSanAntonio，Texas，itsmainstrengthlyingto-dayintheUnitedStates，whereProfessorIrvingFisher，aloneamongstacademiceconomists，hasrecogniseditssignificance。
　　Inspiteoftheprophetictrappingswithwhichhisdevoteeshavedecoratedhim，Gesell'smainbookiswrittenincool，scientificlanguage；thoughitissuffusedthroughoutbyamorepassionate，amoreemotionaldevotiontosocialjusticethansomethinkdecentinascientist。ThepartwhichderivesfromHenryGeorge，[176]thoughdoubtlessanimportantsourceofthemovement'sstrength，isofaltogethersecondaryinterest。Thepurposeofthebookasawholemaybedescribedastheestablishmentofananti-Marxiansocialism，areactionagainstlaissez-fairebuiltontheoreticalfoundationstotallyunlikethoseofMarxinbeingbasedonarepudiationinsteadofonanacceptanceoftheclassicalhypotheses，andonanunfetteringofcompetitioninsteadofitsabolition。IbelievethatthefuturewilllearnmorefromthespiritofGesellthanfromthatofMarx。TheprefacetoTheNaturalEconomicOrderwillindicatetothereader，ifhewillrefertoit，themoralqualityofGesell。TheanswertoMarxismis，Ithink，tobefoundalongthelinesofthispreface。
　　Gesell'sspecificcontributiontothetheoryofmoneyandinterestisasfollows。Inthefirstplace，hedistinguishesclearlybetweentherateofinterestandthemarginalefficiencyofcapital，andhearguesthatitistherateofinterestwhichsetsalimittotherateofgrowthofrealcapital。Next，hepointsoutthattherateofinterestisapurelymonetaryphenomenonandthatthepeculiarityofmoney，fromwhichflowsthesignificanceofthemoneyrateofinterest，liesinthefactthatitsownershipasameansofstoringwealthinvolvestheholderinnegligiblecarryingcharges，andthatformsofwealth，suchasstocksofcommodities[Page356]THE
　　GENERALTHEORYOFEMPLOYMENT
　　whichdoinvolvecarryingcharges，infactyieldareturnbecauseofthestandardsetbymoney。Hecitesthecomparativestabilityoftherateofinterestthroughouttheagesasevidencethatitcannotdependonpurelyphysicalcharacters，inasmuchasthevariationofthelatterfromoneepochtoanothermusthavebeenincalculablygreaterthantheobservedchangesintherateofinterest；i。e。inmyterminologytherateofinterest，whichdependsonconstantpsychologicalcharacters，hasremainedstable，whilstthewidelyfluctuatingcharacters，whichprimarilydeterminethescheduleofthemarginalefficiencyofcapital，havedeterminednottherateofinterestbuttherateatwhichthemoreorlessgivenrateofinterestallowsthestockofrealcapitaltogrow。
　　ButthereisagreatdefectinGesell'stheory。Heshowshowitisonlytheexistenceofarateofmoneyinterestwhichallowsayieldtobeobtainedfromlendingoutstocksofcommodities。HisdialoguebetweenRobinsonCrusoeandastranger[177]isamostexcellenteconomicparable¾；asgoodasanythingofthekindthathasbeenwritten¾；todemonstratethispoint。But，havinggiventhereasonwhythemoney-rateofinterestunlikemostcommodityratesofinterestcannotbenegative，healtogetheroverlookstheneedofanexplanationwhythemoney-rateofinterestispositive，andhefailstoexplainwhythemoney-rateofinterestisnotgovernedastheclassicalschoolmaintainsbythestandardsetbytheyieldonproductivecapital。Thisisbecausethenotionofliquidity-preferencehadescapedhim。Hehasconstructedonlyhalfatheoryoftherateofinterest。
　　Theincompletenessofhistheoryisdoubtlesstheexplanationofhisworkhavingsufferedneglectatthehandsoftheacademicworld。Neverthelesshehadcarriedhistheoryfarenoughtoleadhimtoapracticalrecommendation，whichmaycarrywithittheessence[Page357]NOTES
　　ONMERCANTILISM，ETC。
　　ofwhatisneeded，thoughitisnotfeasibleintheforminwhichheproposedit。Hearguesthatthegrowthofrealcapitalisheldbackbythemoney-rateofinterest，andthatifthisbrakewereremovedthegrowthofrealcapitalwouldbe，inthemodernworld，sorapidthatazeromoney-rateofinterestwouldprobablybejustified，notindeedforthwith，butwithinacomparativelyshortperiodoftime。Thustheprimenecessityistoreducethemoney-rateofinterest，andthis，hepointedout，canbeeffectedbycausingmoneytoincurcarrying-costsjustlikeotherstocksofbarrengoods。Thisledhimtothefamousprescriptionof'stamped'money，withwhichhisnameischieflyassociatedandwhichhasreceivedtheblessingofProfessorIrvingFisher。Accordingtothisproposalcurrencynotesthoughitwouldclearlyneedtoapplyaswelltosomeformsatleastofbank-money
　　wouldonlyretaintheirvaluebybeingstampedeachmonth，likeaninsurancecard，withstampspurchasedatapostoffice。Thecostofthestampscould，ofcourse，befixedatanyappropriatefigure。Accordingtomytheoryitshouldberoughlyequaltotheexcessofthemoney-rateofinterestapartfromthestampsoverthemarginalefficiencyofcapitalcorrespondingtoarateofnewinvestmentcompatiblewithfullemployment。TheactualchargesuggestedbyGesellwas1permil。perweek，equivalentto5。2percentperannum。Thiswouldbetoohighinexistingconditions，butthecorrectfigure，whichwouldhavetobechangedfromtimetotime，couldonlybereachedbytrialanderror。
　　Theideabehindstampedmoneyissound。Itis，indeed，possiblethatmeansmightbefoundtoapplyitinpracticeonamodestscale。ButtherearemanydifficultieswhichGeselldidnotface。Inparticular，hewasunawarethatmoneywasnotuniqueinhavingaliquidity-premiumattachedtoit，butdifferedonlyindegreefrommanyotherarticles，derivingitsimportancefromhavingagreaterliquidity-premiumthanany[Page358]THE
　　GENERALTHEORYOFEMPLOYMENT
　　otherarticle。Thusifcurrencynotesweretobedeprivedoftheirliquidity-premiumbythestampingsystem，alongseriesofsubstituteswouldstepintotheirshoes¾；bank-money，debtsatcall，foreignmoney，jewelleryandthepreciousmetalsgenerally，andsoforth。AsI
　　havementionedabove，therehavebeentimeswhenitwasprobablythecravingfortheownershipofland，independentlyofitsyield，whichservedtokeepuptherateofinterest；¾；thoughunderGesell'ssystemthispossibilitywouldhavebeeneliminatedbylandnationalisation。
　　VII
　　Thetheorieswhichwehaveexaminedabovearedirected，insubstance，totheconstituentofeffectivedemandwhichdependsonthesufficiencyoftheinducementtoinvest。Itisnonewthing，however，toascribetheevilsofunemploymenttotheinsufficiencyoftheotherconstituent，namely，theinsufficiencyofthepropensitytoconsume。Butthisalternativeexplanationoftheeconomicevilsoftheday¾；equallyunpopularwiththeclassicaleconomists¾；playedamuchsmallerpartinsixteenth-andseventeenth-centurythinkingandhasonlygatheredforceincomparativelyrecenttimes。
　　Thoughcomplaintsofunder-consumptionwereaverysubsidiaryaspectofmercantilistthought，ProfessorHeckscherquotesanumberofexamplesofwhathecalls'thedeep-rootedbeliefintheutilityofluxuryandtheevilofthrift。Thrift，infact，wasregardedasthecauseofunemployment，andfortworeasons:inthefirstplace，becauserealincomewasbelievedtodiminishbytheamountofmoneywhichdidnotenterintoexchange，andsecondly，becausesavingwasbelievedtowithdrawmoneyfromcirculation。'
　　[178]In1598LaffemasLesTré；sorsetrichessespourmettrel'EstatenSplendeurdenouncedtheobjectorstotheuseof[Page359]NOTES
　　ONMERCANTILISM，ETC。
　　FrenchsilksonthegroundthatallpurchasersofFrenchluxurygoodscreatedalivelihoodforthepoor，whereasthemisercausedthemtodieindistress'。[179]In1662Pettyjustified'entertainments，magnificentshews，triumphalarches，etc。'，onthegroundthattheircostsflowedbackintothepocketsofbrewers，bakers，tailors，shoemakersandsoforth。
　　Fortreyjustified'excessofapparel'。VonSchrö；tteri686deprecatedsumptuaryregulationsanddeclaredthathewouldwishthatdisplayinclothingandthelikewereevengreater。Barbon1690wrotethat'ProdigalityisavicethatisprejudicialtotheMan，butnottotrade……CovetousnessisaVice，prejudicialbothtoManandTrade。'[180]In1695Caryarguedthatifeverybodyspentmore，allwouldobtainlargerincomes'andmightthenlivemoreplentifully'。[181]
　　ButitwasbyBernardMandeville'sFableoftheBeesthatBarbon'sopinionwasmainlypopularised，abookconvictedasanuisancebythegrandjuryofMiddlesexin1723，whichstandsoutinthehistoryofthemoralsciencesforitsscandalousreputation。Onlyonemanisrecordedashavingspokenagoodwordforit，namelyDrJohnson，whodeclaredthatitdidnotpuzzlehim，but'openedhiseyesintoreallifeverymuch'。Thenatureofthebook'swickednesscanbebestconveyedbyLeslieStephen'ssummaryintheDictionaryofNationalBiography:Mandevillegavegreatoffencebythisbook，inwhichacynicalsystemofmoralitywasmadeattractivebyingeniousparadoxes……Hisdoctrinethatprosperitywasincreasedbyexpenditureratherthanbysavingfellinwithmanycurrenteconomicfallaciesnotyetextinct。[182]Assumingwiththe[Page360]THE
　　GENERALTHEORYOFEMPLOYMENTasceticsthathumandesireswereessentiallyevilandthereforeproduced'privatevices'andassumingwiththecommonviewthatwealthwasa'publicbenefit'，heeasilyshowedthatallcivilisationimpliedthedevelopmentofviciouspropensities……ThetextoftheFableoftheBeesisanallegoricalpoem¾；'TheGrumblingHive，orKnavesturnedhonest'，inwhichissetforththeappallingplightofaprosperouscommunityinwhichallthecitizenssuddenlytakeitintotheirheadstoabandonluxuriousliving，andtheStatetocutdownarmaments，intheinterestsofSaving:NoHonournowcouldbecontent，Toliveandoweforwhatwasspent，Liv'riesinBroker'sshopsarehung；
　　TheypartwithCoachesforasong；
　　SellstatelyHorsesbywholesetsandCountry-Housestopaydebts。
　　Vaincostisshunn'dasmoralFraud；
　　TheyhavenoForceskeptAbroad；
　　Laughatth'EsteemofForeigners，AndemptyGlorygotbyWars；
　　Theyfight，butfortheirCountry'ssake，WhenRightorLiberty'satStake。ThehaughtyChloeContractsth'expensiveBillofFare，AndwearsherstrongSuitawholeYear。Andwhatistheresult？¾；NowmindthegloriousHive，andseeHowHonestyandTradeagree:
　　TheShewisgone，itthinsapace；
　　AndlookswithquiteanotherFace，For'twasnotonlytheythatwent，Bywhomvastsumswereyearlyspent；
　　ButMultitudesthatlivedonthem，Weredailyforc'dtodothesame。
　　InvaintootherTradesthey'dfly；
　　Allwereo'er-stockedaccordingly。
　　ThepriceofLandandHousesfalls；
　　Mirac'lousPalaceswhoseWalls，[Page361]NOTES
　　ONMERCANTILISM，ETC。LikethoseofThebes，wererais'dbyPlay，Aretobelet……
　　TheBuildingTradeisquitedestroy'd，Artificersarenotemploy'd；
　　NolimnerforhisArtisfam'd，Stone-cutters，Carversarenotnam'd。So'TheMoral'is:BareVirtuecan'tmakeNationsliveInSplendour。TheythatwouldreviveAGoldenAge，mustbeasfree，ForAcornsasforHonesty。Twoextractsfromthecommentarywhichfollowstheallegorywillshowthattheabovewasnotwithoutatheoreticalbasis:Asthisprudenteconomy，whichsomepeoplecallSaving，isinprivatefamiliesthemostcertainmethodtoincreaseanestate，sosomeimaginethat，whetheracountrybebarrenorfruitful，thesamemethodifgenerallypursuedwhichtheythinkpracticablewillhavethesameeffectuponawholenation，andthat，forexample，theEnglishmightbemuchricherthantheyare，iftheywouldbeasfrugalassomeoftheirneighbours。This，Ithink，isanerror。[183]Onthecontrary，Mandevilleconcludes:Thegreatarttomakeanationhappy，andwhatwecallflourishing，consistsingivingeverybodyanopportunityofbeingemployed；whichtocompass，letaGovernment'sfirstcarebetopromoteasgreatavarietyofManufacures，ArtsandHandicraftsashumanwitcaninvent；andthesecondtoencourageAgricultureandFisheryinalltheirbranches，thatthewholeEarthmaybeforccdtoexertitselfaswellasMan。ItisfromthisPolicyandnotfromthetriflingregulationsofLavishnessandFrugalitythatthegreatnessandfelicityofNationsmustbeexpected；forletthevalueofGoldandSilverriseorfall，theenjoymentofallSocietieswilleverdependupontheFruitsoftheEarthandtheLabourofthePeople；bothwhichjoinedtogetherareamorecertain，amoreinexhaustible[Page362]THE
　　GENERALTHEORYOFEMPLOYMENTandamorerealTreasurethantheGoldofBrazilortheSilverofPotosi。Nowonderthatsuchwickedsentimentscalleddowntheopprobriumoftwocenturiesofmoralistsandeconomistswhofeltmuchmorevirtuousinpossessionoftheirausteredoctrinethatnosoundremedywasdiscoverableexceptintheutmostofthriftandeconomybothbytheindividualandbythestate。
　　Petty's'entertainments，magnificentshews，triumphalarches，etc。'gaveplacetothepenny-wisdomofGladstonianfinanceandtoastatesystemwhich'couldnotafford'hospitals，openspaces，noblebuildings，eventhepreservationofitsancientmonuments，farlessthesplendoursofmusicandthedrama，allofwhichwereconsignedtotheprivatecharityormagnanimityofimprovidentindividuals。
　　Thedoctrinedidnotreappearinrespectablecirclesforanothercentury，untilinthelaterphaseofMalthusthenotionoftheinsufficiencyofeffectivedemandtakesadefiniteplaceasascientificexplanationofunemployment。SinceIhavealreadydealtwiththissomewhatfullyinmyessayonMalthus，[184]itwillbesufficientifIrepeathereoneortwocharacteristicpassageswhichIhavealreadyquotedinmyessay:Weseeinalmosteverypartoftheworldvastpowersofproductionwhicharenotputintoaction，andIexplainthisphenomenonbysayingthatfromthewantofaproperdistributionoftheactualproduceadequatemotivesarenotfurnishedtocontinuedproduction……Idistinctlymaintainthatanattempttoaccumulateveryrapidly，whichnecessarilyimpliesaconsiderablediminutionofunproductiveconsumption，bygreatlyimpairingtheusualmotivestoproductionmustprematurelychecktheprogressofwealth……Butifitbetruethatanattempttoaccumulateveryrapidlywilloccasionsuchadivisionbetweenlabourandprofitsasalmosttodestroyboththemotiveandthepoweroffutureaccumulationandconsequentlythepowerofmaintainingandem-
　　[Page363]NOTES
　　ONMERCANTILISM，ETC。ployinganincreasingpopulation，mustitnotbeacknowledgedthatsuchanattempttoaccumulate，orthatsavingtoomuch，maybereallyprejudicialtoacountry？[185]
　　Thequestioniswhetherthisstagnationofcapital，andsubsequentstagnationinthedensandforlabourarisingfromincreasedproductionwithoutanadequateproportionofunproductiveconsumptiononthepartofthelandlordsandcapitalists，couldtakeplacewithoutprejudicetothecountry，withoutoccasioningalessdegreebothofhappinessandwealththanwouldhaveoccurrediftheunproductiveconsumptionofthelandlordsandcapitalistshadbeensoproportionedtothenaturalsurplusofthesocietyastohavecontinueduninterruptedthemotivestoproduction，andpreventedfirstanunnaturaldemandforlabourandthenanecessaryandsuddendiminutionofsuchdemand。Butifthisbeso，howcanitbesaidwithtruththatparsimony，thoughitmaybeprejudicialtotheproducers，cannotbeprejudicialtothestate；orthatanincreaseofunproductiveconsumptionamonglandlordsandcapitalistsmaynotsometimesbetheproperremedyforastateofthingsinwhichthemotivestoproductionfail？[186]
　　AdamSmithhasstatedthatcapitalsareincreasedbyparsimony，thateveryfrugalmanisapublicbenefactor，andthattheincreaseofwealthdependsuponthebalanceofproduceaboveconsumption。Thatthesepropositionsaretruetoagreatextentisperfectlyunquestionable……Butitisquiteobviousthattheyarenottruetoanindefiniteextent，andthattheprinciplesofsaving，pushedtoexcess，woulddestroythemotivetoproduction。Ifeverypersonweresatisfiedwiththesimplestfood，thepoorestclothing，andthemeanesthouses，itiscertainthatnoothersortoffood，clothing，andlodgingwouldbeinexistence……Thetwoextremesareobvious；anditfollowsthattheremustbesomeintermediatepoint，thoughtheresourcesofpoliticaleconomymaynotbeabletoascertainit，where，takingintoconsiderationboththepowertoproduceandthewilltoconsume，theencouragementtotheincreaseofwealthisthegreatest。[187]
　　Ofalltheopinionsadvancedbyableandingeniousmen，whichIhaveevermetwith，theopinionofM。Say，which[Page364]THE
　　GENERALTHEORYOFEMPLOYMENTstatesthat，Unproduitconsommé；oudetruitestundé；bouché；fermé；I。i。ch。15，appearstometobethemostdirectlyopposedtojusttheory，andthemostuniformlycontradictedbyexperience。Yetitdirectlyfollowsfromthenewdoctrine，thatcommoditiesaretobeconsideredonlyintheirrelationtoeachother，¾；nottotheconsumers。What，Iwouldask，wouldbecomeofthedemandforcommodities，ifallconsumptionexceptbreadandwaterweresuspendedforthenexthalf-year？
　　Whatanaccumulationofcommodities！Quelsdebouché；s！Whataprodigiousmarketwouldthiseventoccasion！[188]Ricardo，however，wasstone-deaftowhatMalthuswassaying。ThelastechoofthecontroversyistobefoundinJohnStuartMill'sdiscussionofhiswages-fundtheory，[189]whichinhisownmindplayedavitalpartinhisrejectionofthelaterphaseofMalthus，amidstthediscussionsofwhichhehad，ofcourse，beenbroughtup。Mill'ssuccessorsrejectedhiswages-fundtheorybutoverlookedthefactthatMill'srefutationofMalthusdependedonit。Theirmethodwastodismisstheproblemfromthecorpusofeconomicsnotbysolvingitbutbynotmentioningit。Italtogetherdisappearedfromcontroversy。MrCairncross，searchingrecentlyfortracesofitamongsttheminorVictorians，[190]hasfoundevenless，perhaps，thanmighthavebeenexpected。[191]Theoriesofunder-consumptionhibernateduntiltheappearancein1889ofThePhysiologyofIndustry，byJ。
　　A。HobsonandA。F。Mummery，thefirstandmostsignificantofmanyvolumesinwhichfornearlyfiftyyearsMrHobsonhasflunghimselfwithunflagging，butalmostunavailing，ardourandcourage[Page365]NOTES
　　ONMERCANTILISM，ETC。
　　againsttheranksoforthodoxy。Thoughitissocompletelyforgottento-day，thepublicationofthisbookmarks，inasense，anepochineconomicthought。[192]
　　ThePhysiologyofIndustrywaswrittenincollaborationwithA。F。Mummery。MrHobsonhastoldhowthebookcametobewrittenasfollows:
　　[193]Itwasnotuntilthemiddle'eightiesthatmyeconomicheterodoxybegantotakeshape。ThoughtheHenryGeorgecampaignagainstlandvaluesandtheearlyagitationofvarioussocialistgroupsagainstthevisibleoppressionoftheworkingclasses，coupledwiththerevelationsofthetwoBoothsregardingthepovertyofLondon，madeadeepimpressiononmyfeelings，theydidnotdestroymyfaithinPoliticalEconomy。Thatcamefromwhatmaybecalledanaccidentalcontact。WhileteachingataschoolinExeterIcameintopersonalrelationswithabusinessmannamedMummery，knownthenandafterwardsasagreatmountaineerwhohaddiscoveredanotherwayuptheMatterhornandwho，in1895，waskilledinanattempttoclimbthefamousHimalayanmountainNangaParbat。Myintercoursewithhim，I
　　needhardlysay，didnotlieonthisphysicalplane。Buthewasamentalclimberaswell，withanaturaleyeforapathofhisownfindingandasublimedisregardofintellectualauthority。Thismanentangledmeinacontroversyaboutexcessivesaving，whichheregardedasresponsiblefortheunder-employmentofcapitalandlabourinperiodsofbadtrade。ForalongtimeIsoughttocounterhisargumentsbytheuseoftheorthodoxeconomicweapons。ButatlengthheconvincedmeandIwentinwithhimtoelaboratetheover-savingargumentinabookentitledThePhysiologyofIndustry，whichwaspublishedin1889。Thiswasthefirstopenstepinmyhereticalcareer，andIdidnotintheleastrealiseitsmomentousconsequences。ForjustatthattimeIhadgivenupmyscholasticpostandwasopeninganewlineofworkasUniversityExtensionLecturerinEconomicsandLiterature。ThefirstshockcameinarefusaloftheLondonExtensionBoardtoallowmeto[Page366]THE
　　GENERALTHEORYOFEMPLOYMENToffercoursesofPoliticalEconomy。Thiswasdue，Ilearned，totheinterventionofanEconomicProfessorwhohadreadmybookandconsidereditasequivalentinrationalitytoanattempttoprovetheflatnessoftheearth。Howcouldtherebeanylimittotheamountofusefulsavingwheneveryitemofsavingwenttoincreasethecapitalstructureandthefundforpayingwages？Soundeconomistscouldnotfailtoviewwithhorroranargumentwhichsoughttocheckthesourceofallindustrialprogress。
　　[194]Anotherinterestingpersonalexperiencehelpedtobringhometomethesenseofmyiniquity。ThoughpreventedfromlecturingoneconomicsinLondon，IhadbeenallowedbythegreaterliberalityoftheOxfordUniversityExtensionMovementtoaddressaudiencesintheProvinces，confiningmyselftopracticalissuesrelatingtoworking-classlife。NowithappenedatthistimethattheCharityOrganisationSocietywasplanningalecturecampaignuponeconomicsubjectsandinvitedmetoprepareacourse。Ihadexpressedmywillingnesstoundertakethisnewlecturework，whensuddenly，withoutexplanation，theinvitationwaswithdrawn。EventhenIhardlyrealisedthatinappearingtoquestionthevirtueofunlimitedthriftIhadcommittedtheunpardonablesin。InthisearlyworkMrHobsonwithhiscollaboratorexpressedhimselfwithmoredirectreferencetotheclassicaleconomicsinwhichhehadbeenbroughtupthaninhislaterwritings；andforthisreason，aswellasbecauseitisthefirstexpressionofhistheory，Iwillquotefromittoshowhowsignificantandwell-foundedweretheauthors'criticismsandintuitions。Theypointoutintheirprefaceasfollowsthenatureoftheconclusionswhichtheyattack:Savingenrichesandspendingimpoverishesthecommunityalongwiththeindividual，anditmaybegenerallydefinedasanassertionthattheeffectiveloveofmoneyistherootofalleconomicgood。Notmerelydoesitenrichthethriftyin[Page367]NOTES
　　ONMERCANTILISM，ETC。dividualhimself，butitraiseswages，givesworktotheunemployed，andscattersblessingsoneveryside。Fromthedailypaperstothelatesteconomictreatise，fromthepulpittotheHouseofCommons，thisconclusionisreiteratedandre-statedtillitappearspositivelyimpioustoquestionit。Yettheeducatedworld，supportedbythemajorityofeconomicthinkers，uptothepublicationofRicardo'sworkstrenuouslydeniedthisdoctrine，anditsultimateacceptancewasexclusivelyduetotheirinabilitytomeetthenowexplodedwages-funddoctrine。Thattheconclusionshouldhavesurvivedtheargumentonwhichitlogicallystood，canbeexplainedonnootherhypothesisthanthecommandingauthorityofthegreatmenwhoassertedit。Economiccriticshaveventuredtoattackthetheoryindetail，buttheyhaveshrunkappalledfromtouchingitsmainconclusions。Ourpurposeistoshowthattheseconclusionsarenottenable，thatanundueexerciseofthehabitofsavingispossible，andthatsuchundueexerciseimpoverishestheCommunity，throwslabourersoutofwork，drivesdownwages，andspreadsthatgloomandprostrationthroughthecommercialworldwhichisknownasDepressioninTrade……
　　Theobjectofproductionistoprovide'utilitiesandconveniences'
　　forconsumers，andtheprocessisacontinuousonefromthefirsthandlingoftherawmaterialtothemomentwhenitisfinallyconsumedasautilityoraconvenience。TheonlyuseofCapitalbeingtoaidtheproductionoftheseutilitiesandconveniences，thetotalusedwillnecessarilyvarywiththetotalofutilitiesandconveniencesdailyorweeklyconsumed。
　　Nowsaving，whileitincreasestheexistingaggregateofCapital，simultaneouslyreducesthequantityofutilitiesandconveniencesconsumed；anyundueexerciseofthishabitmust，therefore，causeanaccumulationofCapitalinexcessofthatwhichisrequiredforuse，andthisexcesswillexistintheformofgeneralover-production。[195]InthelastsentenceofthispassagethereappearstherootofHobson'smistake，namely，hissupposingthatitisaeaseofexcessivesavingcausingtheactualaccumulationofcapitalinexcessofwhatisrequired，whichis，infact，asecondaryevilwhichonlyoccursthroughmistakesofforesight；
　　whereastheprimary[Page368]THE
　　GENERALTHEORYOFEMPLOYMENT
　　evilisapropensitytosaveinconditionsoffullemploymentmorethantheequivalentofthecapitalwhichisrequired，thuspreventingfullemploymentexceptwhenthereisamistakeofforesight。Apageortwolater，however，heputsonehalfofthematter，asitseemstome，withabsoluteprecision，thoughstilloverlookingthepossiblerô；leofchangesintherateofinterestandinthestateofbusinessconfidence，factorswhichhepresumablytakesasgiven:WearethusbroughttotheconclusionthatthebasisonwhichalleconomicteachingsinceAdamSmithhasstood，viz。thatthequantityannuallyproducedisdeterminedbytheaggregatesofNaturalAgents，Capital，andLabouravailable，iserroneous，andthat，onthecontrary，thequantityproduced，whileitcanneverexceedthelimitsimposedbytheseaggregates，maybe，andactuallyis，reducedfarbelowthismaximumbythecheckthatunduesavingandtheconsequentaccumulationofover-supplyexertsonproduction；
　　i。e。thatinthenormalstateofmodernindustrialCommunities，consumptionlimitsproductionandnotproductionconsumption。[196]FinallyhenoticesthebearingofhistheoryonthevalidityoftheorthodoxFreeTradearguments:Wealsonotethatthechargeofcommercialimbecility，sofreelylaunchedbyorthodoxeconomistsagainstourAmericancousinsandotherProtectionistCommunities，cannolongerbemaintainedbyanyoftheFreeTradeargumentshithertoadduced，sinceallthesearebasedontheassumptionthatover-supplyisimpossible。[197]Thesubsequentargumentis，admittedly，incomplete。Butitisthefirstexplicitstatementofthefactthatcapitalisbroughtintoexistencenotbythepropensitytosavebutinresponsetothedemandresultingfromactualandprospectiveconsumption。Thefollowingportmanteauquotationindicatesthelineofthought:Itshouldbeclearthatthecapitalofacommunitycannotbeadvantageouslyincreasedwithoutasubsequentincrease[Page369]NOTES
　　ONMERCANTILISM，ETC。inconsumptionofcommodities……Everyincreaseansavingandincapitalrequires，inordertobeeffectual，acorrespondingincreaseinimmediatelyfutureconsumption[198]……Andwhenwesayfutureconsuniption，wedonotrefertoafutureoften，twenty，orfiftyyearshence，buttoafuturethatisbutlittleremovedfromthepresent……Ifincreasedthriftorcautioninducespeopletosavemoreinthepresent，theymustconsenttoconsumemoreinthefuture[199]……Nomorecapitalcaneconomicallyexistatanypointintheproductiveprocessthanisrequiredtofurnishcommoditiesforthecurrentrateofconsumption[200]……Itisclearthatmythriftinnowiseaffectsthetotaleconomicthriftofthecommunity，butonlydetermineswhetheraparticularportionofthetotalthriftshallhavebeenexercisedbymyselforbysomebodyelse。Weshallshowhowthethriftofonepartofthecommunityhaspowertoforceanotherparttolivebeyondtheirincome。[201]……Mostmoderneconomistsdenythatconsumptioncouldbyanypossibilitybeinsufficient。Canwefindanyeconomicforceatworkwhichmightinciteacommunitytothisexcess，andiftherebeanysuchforcesaretherenotefficientchecksprovidedbythemechanismofcommerce？Itwillbeshown，firstly，thatineveryhighlyorganisedindustrialsocietythereisconstantlyatworkaforcewhichnaturallyoperatestoinduceexcessofthrift；secondly，thatthechecksallegedtobeprovidedbythemechanismofcommerceareeitherwhollyinoperativeorareinadequatetopreventgravecommercialevil[202]……ThebriefanswerwhichRicardogavetothecontentionsofMalthusandChalmersseemstohavebeenacceptedassufficientbymostlatereconomists。'Productionsarealwaysboughtbyproductionsorservices；moneyisonlythemediumbywhichtheexchangeiseffected。Hencetheincreasedproductionbeingalwaysaccompaniedbyacorrespondinglyincreasedabilitytogetandconsume，thereisnopossibilityofOver-production'Ricardo，Prin。ofPol。
　　Econ。p。362。[203]HobsonandMummerywereawarethatinterestwasnothingwhateverexceptpaymentfortheuseofmoney。[204]Theyalsoknewwellenoughthattheiropponentswouldclaimthattherewouldbe'suchafall[Page370]THE
　　GENERALTHEORYOFEMPLOYMENT
　　intherateofinterestorprofitaswillactasacheckuponSaving，andrestoretheproperrelationbetweenproductionandconsumption'。[
　　205]Theypointoutinreplythat'ifafallofProfitistoinducepeopletosaveless，itmustoperateinoneoftwoways，eitherbyinducingthemtospendmoreorbyinducingthemtoproduceless'。[206]Asregardstheformertheyarguethatwhenprofitsfalltheaggregateincomeofthecommunityisreduced，and'wecannotsupposethatwhentheaveragerateofincomesisfalling，individualswillbeinducedtoincreasetheirrateofconsumptionbythefactthatthepremiumuponthriftiscorrespondinglydiminished'；whilstasforthesecondalternative，'itissofarfrombeingourintentiontodenythatafallofprofit，duetoover-supply，willcheckproduction，thattheadmissionoftheoperationofthischeckformstheverycentreofourargument'。[207]Nevertheless，theirtheoryfailedofcompleteness，essentiallyonaccountoftheirhavingnoindependenttheoryoftherateofinterest；withtheresultthatMrHobsonlaidtoomuchemphasisespeciallyinhislaterbooksonunder-consumptionleadingtoover-investment，inthesenseofunprofitableinvestment，insteadofexplainingthatarelativelyweakpropensitytoconsumehelpstocauseunemploymentbyrequiringandnotreceivingtheaccompanimentofacompensatingvolumeofnewinvestment，which，evenifitmaysometimesoccurtemporarilythrougherrorsofoptimism，isingeneralpreventedfromhappeningatallbytheprospectiveprofitfallingbelowthestandardsetbytherateofinterest。
　　Sincethewartherehasbeenaspateofhereticaltheoriesofunder-consumption，ofwhichthoseofMajorDouglasarethemostfamous。ThestrengthofMajorDouglas'sadvocacyhas，ofcourse，largelydependedonorthodoxyhavingnovalidreplytomuch[Page371]NOTES
　　ONMERCANTILISM，ETC。
　　ofhisdestructivecriticism。Ontheotherhand，thedetailofhisdiagnosis，inparticulartheso-calledABtheorem，includesmuchmeremystification。IfMajorDouglashadlimitedhisB-itemstothefinancialprovisionsmadebyentrepreneurstowhichnocurrentexpenditureonreplacementsandrenewalscorresponds，hewouldbenearerthetruth。
　　Buteveninthatcaseitisnecessarytoallowforthepossibilityoftheseprovisionsbeingoffsetbynewinvestmentinotherdirectionsaswellasbyincreasedexpenditureonconsumption。MajorDouglasisentitledtoclaim，asagainstsomeofhisorthodoxadversaries，thatheatleasthasnotbeenwhollyobliviousoftheoutstandingproblemofoureconomicsystem。Yethehasscarcelyestablishedanequalclaimtorank¾；aprivate，perhaps，butnotamajorinthebravearmyofheretics¾；withMandeville，Malthus，GesellandHobson，who，followingtheirintuitions，havepreferredtoseethetruthobscurelyandimperfectlyratherthantomaintainerror，reachedindeedwithclearnessandconsistencyandbyeasylogicbutonhypothesesinappropriatetothefacts。
　　ConcludingNotes[Page372]
　　Chapter24
　　CONCLUDINGNOTESONTHE
　　SOCIALPHILOSOPHY
　　TOWARDSWHICHTHE
　　GENERALTHEORYMIGHTLEAD
　　I
　　Theoutstandingfaultsoftheeconomicsocietyinwhichweliveareitsfailuretoprovideforfullemploymentanditsarbitraryandinequitabledistributionofwealthandincomes。Thebearingoftheforegoingtheoryonthefirstoftheseisobvious。Buttherearealsotwoimportantrespectsinwhichitisrelevanttothesecond。
　　Sincetheendofthenineteenthcenturysignificantprogresstowardstheremovalofverygreatdisparitiesofwealthandincomehasbeenachievedthroughtheinstrumentofdirecttaxation¾；incometaxandsurtaxanddeathduties¾；especiallyinGreatBritain。Manypeoplewouldwishtoseethisprocesscarriedmuchfurther，buttheyaredeterredbytwoconsiderations；partlybythefearofmakingskilfulevasionstoomuchworthwhileandalsoofdiminishingundulythemotivetowardsrisk-taking，butmainly，Ithink，bythebeliefthatthegrowthofcapitaldependsuponthestrengthofthemotivetowardsindividualsavingandthatforalargeproportionofthisgrowthwearedependentonthesavingsoftherichoutoftheirsuperfluity。Ourargumentdoesnotaffectthefirstoftheseconsiderations。Butitmayconsiderablymodifyourattitudetowardsthesecond。Forwehaveseenthat，uptothepointwherefullemploymentprevails，thegrowth[Page373]CONCLUDING
　　NOTES
　　ofcapitaldependsnotatallonalowpropensitytoconsumebutis，onthecontrary，heldbackbyit；andonlyinconditionsoffullemploymentisalowpropensitytoconsumeconducivetothegrowthofcapital。Moreover，experiencesuggeststhatinexistingconditionssavingbyinstitutionsandthroughsinkingfundsismorethanadequate，andthatmeasuresfortheredistributionofincomesinawaylikelytoraisethepropensitytoconsumemayprovepositivelyfavourabletothegrowthofcapital。
　　Theexistingconfusionofthepublicmindonthematteriswellillustratedbytheverycommonbeliefthatthedeathdutiesareresponsibleforareductioninthecapitalwealthofthecountry。AssumingthattheStateappliestheproceedsofthesedutiestoitsordinaryoutgoingssothattaxesonincomesandconsumptionarecorrespondinglyreducedoravoided，itis，ofcourse，truethatafiscalpolicyofheavydeathdutieshastheeffectofincreasingthecommunity'spropensitytoconsume。Butinasmuchasanincreaseinthehabitualpropensitytoconsumewillingenerali。e。exceptinconditionsoffullemploymentservetoincreaseatthesametimetheinducementtoinvcst，theinferencecommonlydrawnistheexactoppositeofthetruth。
　　Thusourargumentleadstowardstheconclusionthatincontemporaryconditionsthegrowthofwealth，sofarfrombeingdependentontheabstinenceoftherich，asiscommonlysupposed，ismorelikelytobeimpededbyit。
　　Oneofthechiefsocialjustificationsofgreatinequalityofwealthis，therefore，removed。Iamnotsayingthattherearenootherreasons，unaffectedbyourtheory，capableofjustifyingsomemeasureofinequalityinsomecircumstances。Butitdoesdisposeofthemostimportantofthereasonswhyhithertowehavethoughtitprudenttomovecarefully。Thisparticularlyaffectsourattitudetowardsdeathduties:fortherearecertainjustificationsforinequalityof[Page374]THE
　　GENERALTHEORYOFEMPLOYMENT
　　incomeswhichdonotapplyequallytoinequalityofinheritances。
　　Formyownpart，Ibelievethatthereissocialandpsychologicaljustificationforsignificantinequalitiesofincomesandwealth，butnotforsuchlargedisparitiesasexistto-day。Therearevaluablehumanactivitieswhichrequirethemotiveofmoney-makingandtheenvironmentofprivatewealth-ownershipfortheirfullfruition。Moreover，dangeroushumanproclivitiescanbecanalisedintocomparativelyharmlesschannelsbytheexistenceofopportunitiesformoney-makingandprivatewealth，which，iftheycannotbesatisfiedinthisway，mayfindtheiroutletincruelty，therecklesspursuitofpersonalpowerandauthority，andotherformsofself-aggrandisement。Itisbetterthatamanshouldtyranniseoverhisbankbalancethanoverhisfellow-citizens；andwhilsttheformerissometimesdenouncedasbeingbutameanstothelatter，sometimesatleastitisanalternative。Butitisnotnecessaryforthestimulationoftheseactivitiesandthesatisfactionoftheseproclivitiesthatthegameshouldbeplayedforsuchhighstakesasatpresent。Muchlowerstakeswillservethepurposeequallywell，assoonastheplayersareaccustomedtothem。Thetaskoftransmutinghumannaturemustnotbeconfusedwiththetaskofmanagingit。Thoughintheidealcommonwealthmenmayhavebeentaughtorinspiredorbredtotakenointerestinthestakes，itmaystillbewiseandprudentstatesmanshiptoallowthegametobeplayed，subjecttorulesandlimitations，solongastheaverageman，orevenasignificantsectionofthecommunity，isinfactstronglyaddictedtothemoney-makingpassion。
　　II
　　Thereis，however，asecond，muchmorefundamentalinferencefromourargumentwhichhasa[Page375]CONCLUDING
　　NOTES
　　bearingonthefutureofinequalitiesofwealth；namely，ourtheoryoftherateofinterest。Thejustificationforamoderatelyhighrateofinteresthasbeenfoundhithertointhenecessityofprovidingasufficientinducementtosave。Butwehaveshownthattheextentofeffectivesavingisnecessarilydeterminedbythescaleofinvestmentandthatthescaleofinvestmentispromotedbyalowrateofinterest，providedthatwedonotattempttostimulateitinthiswaybeyondthepointwhichcorrespondstofullemployment。Thusitistoourbestadvantagetoreducetherateofinteresttothatpointrelativelytothescheduleofthemarginalefficiencyofcapitalatwhichthereisfullemployment。
　　Therecanbenodoubtthatthiscriterionwillleadtoamuchlowerrateofinterestthanhasruledhitherto；and，sofarasonecanguessattheschedulesofthemarginalefficiencyofcapitalcorrespondingtoincreasingamountsofcapital，therateofinterestislikelytofallsteadily，ifitshouldbepracticabletomaintainconditionsofmoreorlesscontinuousfullemployment¾；unless，indeed，thereisanexcessivechangeintheaggregatepropensitytoconsumeincludingtheState。
　　Ifeelsurethatthedemandforcapitalisstrictlylimitedinthesensethatitwouldnotbedifficulttoincreasethestockofcapitaluptoapointwhereitsmarginalefficiencyhadfallentoaverylowfigure。Thiswouldnotmeanthattheuseofcapitalinstrumentswouldcostalmostnothing，butonlythatthereturnfromthemwouldhavetocoverlittlemorethantheirexhaustionbywastageandobsolescencetogetherwithsomemargintocoverriskandtheexerciseofskillandjudgment。Inshort，theaggregatereturnfromdurablegoodsinthecourseoftheirlifewould，asinthecaseofshort-livedgoods，justcovertheirlabour-costsofproductionplusanallowanceforriskandthecostsofskillandsupervision。
　　Now，thoughthisstateofaffairswouldbequitecompatiblewithsomemeasureofindividualism，yet[Page376]THE
　　GENERALTHEORYOFEMPLOYMENT
　　itwouldmeantheeuthanasiaoftherentier，and，consequently，theeuthanasiaofthecumulativeoppressivepowerofthecapitalisttoexploitthescarcity-valueofcapital。Interestto-dayrewardsnogenuinesacrifice，anymorethandoestherentofland。Theownerofcapitalcanobtaininterestbecausecapitalisscarce，justastheowneroflandcanobtainrentbecauselandisscarce。Butwhilsttheremaybeintrinsicreasonsforthescarcityofland，therearenointrinsicreasonsforthescarcityofcapital。Anintrinsicreasonforsuchscarcity，inthesenseofagenuinesacrificewhichcouldonlybecalledforthbytheofferofarewardintheshapeofinterest，wouldnotexist，inthelongrun，exceptintheeventoftheindividualpropensitytoconsumeprovingtobeofsuchacharacterthatnetsavinginconditionsoffullemploymentcomestoanendbeforecapitalhasbecomesufficientlyabundant。Butevenso，itwillstillbepossibleforcommunalsavingthroughtheagencyoftheStatetobemaintainedatalevelwhichwillallowthegrowthofcapitaluptothepointwhereitceasestobescarce。
　　Isee，therefore，therentieraspectofcapitalismasatransitionalphasewhichwilldisappearwhenithasdoneitswork。Andwiththedisappearanceofitsrentieraspectmuchelseinitbesideswillsufferasea-change。
　　Itwillbe，moreover，agreatadvantageoftheorderofeventswhichI
　　amadvocating，thattheeuthanasiaoftherentier，ofthefunctionlessinvestor，willbenothingsudden，merelyagradualbutprolongedcontinuanceofwhatwehaveseenrecentlyinGreatBritain，andwillneednorevolution。
　　Thuswemightaiminpracticetherebeingnothinginthiswhichisunattainableatanincreaseinthevolumeofcapitaluntilitceasestobescarce，sothatthefunctionlessinvestorwillnolongerreceiveabonus；
　　andataschemeofdirecttaxationwhichallowstheintelligenceanddeterminationandexecutiveskillofthefinancier，theentrepreneurethocgenusomnewhoarecertainlyso[Page377]CONCLUDING
　　NOTES
　　fondoftheircraftthattheirlabourcouldbeobtainedmuchcheaperthanatpresent，tobeharnessedtotheserviceofthecommunityonreasonabletermsofreward。
　　Atthesametimewemustrecognisethatonlyexperiencecanshowhowfarthecommonwill，embodiedinthepolicyoftheState，oughttobedirectedtoincreasingandsupplementingtheinducementtoinvest；andhowfaritissafetostimulatetheaveragepropensitytoconsume，withoutforegoingouraimofdeprivingcapitalofitsscarcity-valuewithinoneortwogenerations。
　　Itmayturnoutthatthepropensitytoconsumewillbesoeasilystrengthenedbytheeffectsofafallingrateofinterest，thatfullemploymentcanbereachedwitharateofaccumulationlittlegreaterthanatpresent。
　　Inthiseventaschemeforthehighertaxationoflargeincomesandinheritancesmightbeopentotheobjectionthatitwouldleadtofullemploymentwitharateofaccumulationwhichwasreducedconsiderablybelowthecurrentlevel。Imustnotbesupposedtodenythepossibility，oreventheprobability，ofthisoutcome。Forinsuchmattersitisrashtopredicthowtheaveragemanwillreacttoachangedenvironment。If，however，itshouldproveeasytosecureanapproximationtofullemploymentwitharateofaccumulationnotmuchgreaterthanatpresent，anoutstandingproblemwillatleasthavebeensolved。Anditwouldremainforseparatedecisiononwhatscaleandbywhatmeansitisrightandreasonabletocallonthelivinggenerationtorestricttheirconsumption，soastoestablishincourseoftime，astateoffullinvestmentfortheirsuccessors。
　　III
　　Insomeotherrespectstheforegoingtheoryismoderatelyconservativeinitsimplications。Forwhilstitindicatesthevitalimportanceofestablishingcertaincentralcontrolsinmatterswhicharenowleftinthe[Page378]THE
　　GENERALTHEORYOFEMPLOYMENT
　　maintoindividualinitiative，therearewidefieldsofactivitywhichareunaffected。TheStatewillhavetoexerciseaguidinginfluenceonthepropensitytoconsumepartlythroughitsschemeoftaxation，partlybyfixingtherateofinterest，andpartly，perhaps，inotherways。Furthermore，itseemsunlikelythattheinfluenceofbankingpolicyontherateofinterestwillbesufficientbyitselftodetermineanoptimumrateofinvestment。
　　Iconceive，therefore，thatasomewhatcomprehensivesocialisationofinvestmentwillprovetheonlymeansofsecuringanapproximationtofullemployment；
　　thoughthisneednotexcludeallmannerofcompromisesandofdevicesbywhichpublicauthoritywillco-operatewithprivateinitiative。ButbeyondthisnoobviouscaseismadeoutforasystemofStateSocialismwhichwouldembracemostoftheeconomiclifeofthecommunity。ItisnottheownershipoftheinstrumentsofproductionwhichitisimportantfortheStatetoassume。IftheStateisabletodeterminetheaggregateamountofresourcesdevotedtoaugmentingtheinstrumentsandthebasicrateofrewardtothosewhoownthem，itwillhaveaccomplishedallthatisnecessary。
　　Moreover，thenecessarymeasuresofsocialisationcanbeintroducedgraduallyandwithoutabreakinthegeneraltraditionsofsociety。
　　Ourcriticismoftheacceptedclassicaltheoryofeconomicshasconsistednotsomuchinfindinglogicalflawsinitsanalysisasinpointingoutthatitstacitassumptionsareseldomorneversatisfied，withtheresultthatitcannotsolvetheeconomicproblemsoftheactualworld。Butifourcentralcontrolssucceedinestablishinganaggregatevolumeofoutputcorrespondingtofullemploymentasnearlyasispracticable，theclassicaltheorycomesintoitsownagainfromthispointonwards。Ifwesupposethevolumeofoutputtobegiven，i。e。tobedeterminedbyforcesoutsidetheclassicalschemeofthought，thenthereisnoobjectiontoberaisedagainsttheclassicalanalysisofthemanner[Page379]CONCLUDING
　　NOTES
　　inwhichprivateself-interestwilldeterminewhatinparticularisproduced，inwhatproportionsthefactorsofproductionwillbecombinedtoproduceit，andhowthevalueofthefinalproductwillbedistributedbetweenthem。Again，ifwehavedealtotherwisewiththeproblemofthrift，thereisnoobjectiontoberaisedagainstthemodernclassicaltheoryastothedegreeofconsiliencebetweenprivateandpublicadvantageinconditionsofperfectandimperfectcompetitionrespectively。Thus，apartfromthenecessityofcentralcontrolstobringaboutanadjustmentbetweenthepropensitytoconsumeandtheinducementtoinvest，thereisnomorereasontosocialiseeconomiclifethantherewasbefore。
　　Toputthepointconcretely，Iseenoreasontosupposethattheexistingsystemseriouslymisemploysthefactorsofproductionwhichareinuse。
　　Thereare，ofcourse，errorsofforesight；butthesewouldnotbeavoidedbycentralisingdecisions。When9，000，000menareemployedoutof10，000，000
　　willingandabletowork，thereisnoevidencethatthelabourofthese9，000，000menismisdirected。Thecomplaintagainstthepresentsystemisnotthatthese9，000，000menoughttobeemployedondifferenttasks，butthattasksshouldbeavailablefortheremaining1，000，000men。Itisindeterminingthevolume，notthedirection，ofactualemploymentthattheexistingsystemhasbrokendown。
　　ThusIagreewithGesellthattheresultoffillinginthegapsintheclassicaltheoryisnottodisposeofthe'ManchesterSystem'，buttoindicatethenatureoftheenvironmentwhichthefreeplayofeconomicforcesrequiresifitistorealisethefullpotentialitiesofproduction。Thecentralcontrolsnecessarytoensurefullemploymentwill，ofcourse，involvealargeextensionofthetraditionalfunctionsofgovernment。Furthermore，themodernclassicaltheoryhasitselfcalledattentiontovariousconditionsinwhichthefreeplayof[Page380]THE
　　GENERALTHEORYOFEMPLOYMENT
　　economicforcesmayneedtobecurbedorguided。Buttherewillstillremainawidefieldfortheexerciseofprivateinitiativeandresponsibility。
　　Withinthisfieldthetraditionaladvantagesofindividualismwillstillholdgood。
　　Letusstopforamomenttoremindourselveswhattheseadvantagesare。
　　Theyarepartlyadvantagesofefficiency¾；theadvantagesofdecentralisationandoftheplayofself-interest。Theadvantagetoefficiencyofthedecentralisationofdecisionsandofindividualresponsibilityisevengreater，perhaps，thanthenineteenthcenturysupposed；andthereactionagainsttheappealtoself-interestmayhavegonetoofar。But，aboveall，individualism，ifitcanbepurgedofitsdefectsanditsabuses，isthebestsafeguardofpersonallibertyinthesensethat，comparedwithanyothersystem，itgreatlywidensthefieldfortheexerciseofpersonalchoice。Itisalsothebestsafeguardofthevarietyoflife，whichemergespreciselyfromthisextendedfieldofpersonalchoice，andthelossofwhichisthegreatestofallthelossesofthehomogeneousortotalitarianstate。Forthisvarietypreservesthetraditionswhichembodythemostsecureandsuccessfulchoicesofformergenerations；itcoloursthepresentwiththediversificationofitsfancy；and，beingthehandmaidofexperimentaswellasoftraditionandoffancy，itisthemostpowerfulinstrumenttobetterthefuture。
　　Whilst，therefore，theenlargementofthefunctionsofgovernment，involvedinthetaskofadjustingtooneanotherthepropensitvtoconsumeandtheinducementtoinvest，wouldseemtoanineteenth-centurypublicistortoacontemporaryAmericanfinanciertobeaterrificencroachmentonindividualism，Idefendit，onthecontrary，bothastheonlypracticablemeansofavoidingthedestructionofexistingeconomicformsintheirentiretyandastheconditionofthesuccessfulfunctioningofindividualinitiative。
　　Forifeffectivedemandisdeficient，notonlyisthe[Page381]CONCLUDING
　　NOTES
　　publicscandalofwastedresourcesintolerable，buttheindividualenterpriserwhoseekstobringtheseresourcesintoactionisoperatingwiththeoddsloadedagainsthim。Thegameofhazardwhichheplaysisfurnishedwithmanyzeros，sothattheplayersasawholewillloseiftheyhavetheenergyandhopetodealallthecardsHithertotheincrementoftheworld'swealthhasfallenshortoftheaggregateofpositiveindividualsavings；andthedifferencehasbeenmadeupbythelossesofthosewhosecourageandinitiativehavenotbeensupplementedbyexceptionalskillorunusualgoodfortune。Butifeffectivedemandisadequate，averageskillandaveragegoodfortunewillbeenough。
　　Theauthoritarianstatesystemsofto-dayseemtosolvetheproblemofunemploymentattheexpenseofefficiencyandoffreedom。Itiscertainthattheworldwillnotmuchlongertoleratetheunemploymentwhich，apartfrombriefintervalsofexcitement，isassociated¾；and，inmyopinion，inevitablyassociated¾；withpresent-daycapitalisticindividualism。Butitmaybepossiblebyarightanalysisoftheproblemtocurethediseasewhilstpreservingefficiencyandfreedom。